Why Great CEOs Are Worth It

1/11/2013 5:31PM

Popular outrage over CEO pay and perks is understandable, says author Ray Fisman in a discussion with WSJ weekend Review editor Gary Rosen, but many top executives provide good value for their lavish compensation.

This transcript has been automatically generated and may not be 100% accurate.

... I ... it's been a tough few years for American CEOs they're widely thought to get excessive compensation and most of the time not to be worth their pay and perks where here today with rates this month Iran ... and has to be him who is the author of ANU book author I should say with Tim Sullivan of a book called The or the underlying logic of the office and in one of the subjects you take that is exactly what the CEO is due ... and and how and why they are compensated the way they are so ... so I think it's a great place to start to ... see what we know about how most CEOs spend their time it's it's surprising him anyway ... it is that when a lot more about it now than we did a few decades ago because there been a number of times studies of ... CEOs were ... they or their assistants her research are ... I have is tell them around for the course of all over the course of a week to see how they spend their time is that in meetings ... at a meeting with one person in the meeting that many people in these BlackBerry ... are they sitting working alone ... time and it turns out that this last category ... city in thinking deep thoughts in solitude take some very very little of that I needed a five percent of the time is spent meeting ... and so ... what what did they do in these meetings so what what is what is the function of a CEO in spending so much face time with ... other people in their companies ... but terms of that is not a lot of useful information they give you can extract from a spreadsheet ... or are on a report ... that if I actually want to get to the truth I need to look you straight and I ... can say really ... how can that be try it you made those loans to whom ... on so that's in one direction so the way that is the CEO gets most of this information ... is information traveling up through the organization my manager is ... the same thing as too on the way back down his message is so prone to be an garbled ... I you hear the Ariz Red's vacuous statements and annual reports we've maximize shareholder value we promote innovation what are these things really mean ... aam the CEO communicates this message ... by these face-to-face meetings ... you also ... get a very different perspective on some of the perks of being a CEO so private jets ... have been a source of great controversy in recent years ... and then you say in many ways I'm private jets ... Anwar and functional school and Morgan functional school for certain Chief Executive so explain to me just seems like one of these perfect emblem of corporate corruption it just seems wrong yes know before I answer this question how the deficit by saying ... I don't want to be an apologist for outrageous CEO pay which certainly exists I think ... the fact that we need to confront ... is that CEO pay is not just high eroded to the earnings of others ... but historically it is astronomical I don't wanna see the CEOs today are so much better than they were ... in the fifties and they earn ... a massively higher multiple relative to the average person than they did back then ... now having said that ... I if you think that what's so important about what CEOs do is extracting information and presenting information via face to face ... a contraction ... you want to do everything you can ... I'd to make it easy for him to meet ... and talk ... on that is he needs to be flying around in many many cases to take the company like Eli Lilly is based in Indianapolis ... awful lot of their business will reside elsewhere ... so the CEO of Eli Lilly needs a private jet to have more face time and to use it ... effectively ... so something that I think is noteworthy is that one ... aam cost cutters private equity investors ... to take over firms ... they very often to get rid of private jets that is there is ... a slack in the sense ... there is waste and the Basseley don't get rid of all ... so the image that you present the CEO is someone who's running around an organization running around the world collecting information making sure that people with different levels of the company are on task ... trying to make things work according to his or her vision ... so that we just a question of compensation so how does this sort of activity in the best case ... and make it ... I'm understandable least ... I'm how much the CEOs get paid for what they do ... it all makes it understandable it is that your partner organization has tens or hundreds of thousands of employees ... profits in the billions ... to pay it actually quite a lot of money ... to have someone who is not necessarily vastly better paid than just a few fractions of a percent better than the next ... best thing ... it's the it's the economics of superstars in the same way the ... major League baseball player gets paid millions ... for thronged a fastball that only a few miles an hour faster than a minor leaguer who is earning ... ten thousand dollars for the season ... so it did to some of it away if we step back and look at popular and political indignation about CEO pay ... what what are we to conclude from the research you've done to permit the conclusions of your book ... why we like people to take away ... he is an understandable CEOs do which is a necessary condition ... to appreciating the logic underlying why they're paved the way they are bizarre and that's the only way ... we'll ever distinguish between pay for genuine performance as opposed to pay for incompetence ... very good think you're a fist and co author of The for the underlying logic